- A commentary by Rob Wilkie, CFO Softline and Sage AAMEA

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Sage Business Index polls over 10,000 businesses (across Europe, North America, South Africa and Asia) in order to measure the changing mood of business. In South Africa 1,000 businesses were surveyed and the responses show that both business outlook and economic confidence is still improving, albeit at a slower rate since last measured in September 2011.

This is consistent with the views we got from a few leading SA economists. According to them, our real income is growing. This means that we have dutifully been paying down our household debt (made easier with low interest rates). Our household debt to disposable income ratio has therefore fallen. In theory this means that we have more cash available to absorb price rises in food, petrol, tolls and electricity. In addition, banks are once again lending and households are taking on more credit. Not only are we absorbing price increases but we are also buying more with buoyancy recently reported in both retail and the consumer goods sector.

In short, there appears to be some cyclical buoyancy. The next 6 months will hopefully give us a clearer view of its sustainability.  Keep an eye out for price inflation – if it starts to rise faster than disposable income, consumer spending will decline. This is referred to as demand destroying inflation and what always follows is a drop in confidence.

…. and spare a thought for those who have not been in line for pay increases, or retirees reliant on an eroding interest income? Their real income has declined and price increases are already hurting. These households are already under a lot of pressure, a precursor perhaps for what is to come.